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Amid a push for the A worker restores the Al Sarreha Mosque in Riyadh, Saudi Arabia, March 8, 2018 (AP photo by Amr Nabil).

What’s Behind Saudi Arabia’s Pivot Away From Foreign Workers

Friday, Aug. 16, 2019

Editor’s Note: This article is part of an ongoing series on immigration and integration policy around the world.

The kingdom is looking to address high youth unemployment by pushing for the "Saudization" of certain industries, particularly in the private sector.

Saudi Arabia announced plans late last month to ban foreign workers from certain jobs in the hospitality sector. The move is the latest in a series of policy shifts designed to tackle the kingdom’s high unemployment rate by boosting private sector hiring for Saudi citizens, after many years of relying on cheap foreign labor. But many analysts are skeptical that this policy of “Saudization” will achieve the desired results. In an email interview with WPR, Omar Al-Ubaydli, the director of research at the Bahrain Center for Strategic, International and Energy Studies, explains why Saudi Arabia is prioritizing new job opportunities for citizens and why its approach is likely to face pushback from both employers and consumers.

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World Politics Review: What are the Saudi government’s main reasons for restricting employment of foreigners in key sectors of the economy?

Omar Al-Ubaydli: One of the Saudi government’s current policy priorities is creating jobs for nationals. In the past, this was easily achieved by boosting public sector hiring. The public sector was able to absorb many Saudi nationals due to both the small population and the country’s abundance of oil revenues, especially prior to 2014, when oil prices were at record highs. At the same time, migrant workers were brought into the country to plug skills gaps in the labor force—for jobs such as petrochemical engineers, consultants and physicians—and to perform jobs that are seen as undesirable, such as construction labor and street cleaning.

In recent years, sustained population growth has created a youth bulge, while falling oil prices have put significant pressure on state finances. As a result, the public sector can no longer absorb job-seeking nationals like it did before. Moreover, over-staffing in public sector entities has also started to adversely affect their efficiency, creating unnecessary red tape that impedes economic growth. Unemployment is high, at more than 12 percent, and youth unemployment is at 25 percent. The government sees youth unemployment as a source of social instability, as well as a breeding ground for extremism.

Part of the government’s response to this problem has been to tighten restrictions on the employment of foreigners, based on the belief that foreign workers are a substitute for Saudi nationals. Officials in Riyadh believe that employers will be forced to hire nationals instead.

WPR: What kind of pushback is the government facing from the private sector as it moves forward with the “Saudization” of its workforce? What other obstacles does the policy face?

Al-Ubaydli: Individual actors in the Saudi private sector, like private sector organizations all over the world, are not concerned with national-level strategic goals such as increasing the employment rate of Saudi nationals. They want to hire high-quality workers for low wages, in order to produce goods and services that they can sell for a profit. Any special consideration given to nationals would be based on explicit incentives, such as quotas, regulations and subsidies.

With this in mind, the prevailing preference for migrant workers across many sectors of the Saudi economy reflects a combination of factors. For low-skill jobs, like retail sales, migrant workers are willing to work for less. In highly skilled job categories, like university professors, there is an insufficient number of nationals with the requisite skills. And across all skill levels, migrant workers tend to have a better work ethic. Foreigners are also free of cultural resistance to jobs that are deemed low-status in Saudi society, like garbage collectors and waiters.

Consequently, in many jobs, nationals and migrant workers are not interchangeable, and in the short-to-medium term, tightening restrictions on migrant workers will only adversely affect the labor pool available to the private sector. This will likely result in pushback from firms.

Eventually, this policy will result in higher consumer prices, as the supply of cheap labor is constrained. This may cause some pushback from consumers, too, though that is unlikely to materialize in the short term.

WPR: How is Saudi Arabia faring in its efforts to attract more highly skilled foreign workers to diversify its economy away from a reliance on oil?

Al-Ubaydli: Saudi Arabia has always been able to attract highly skilled foreign workers, because it can offer high wages, good benefits and minimal taxes. Moreover, the kafala system of worker sponsorship was designed to make the paperwork for hiring foreigners very straightforward and cheap. It involves foreign workers being sponsored by domestic individuals or corporations, meaning that their presence is tied to their job. This system gives the sponsor great flexibility in hiring and firing foreign workers. By contrast, the United States’ H-1B foreign worker visa requires fulfilling a byzantine set of requirements to demonstrate that the local labor pool is unable to satisfy the employer’s needs.

Despite this advantage compared to other labor-importing countries in the world, Saudi Arabia has in the past been at a disadvantage relative to some other Gulf countries due to its cultural climate: separation of the sexes, restrictions on attire, and a lack of alcohol, cinemas and other entertainment facilities. These lifestyle factors forced it to pay a premium for migrant workers, but that is slowly changing due to social reforms that are improving the quality of life for Saudi nationals and foreigners alike. These include loosening restrictions on cinemas and concerts and permitting women to drive.

Moreover, ongoing difficulties in the global economy mean that there continues to be a large supply of high-quality workers willing to work in Saudi Arabia. Many OECD economies, especially in Europe, have yet to mount a sustained recovery to the 2008 financial crisis, with stagnating wage growth and persistent unemployment. Working in Saudi Arabia for a few years may look attractive, as a result.

The challenge for the Saudi government is designing systems that maximize the rate of knowledge transfer from migrant to domestic members of the workforce, to assist in diversifying the economy. In the past, much of the expertise possessed by foreign workers has departed Saudi Arabia when the workers themselves fulfill their contracts, which limits the long-term benefits to the economy. Today, there is a much greater emphasis on using foreign workers for capacity-building, to limit the economy’s long-term dependence on foreign workers. But it will take many years before the fruits of this effort can be realized.

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